Another quarter, another review. Your organisation is worried advertising costs are rising. Spend is up significantly on video ads and worse, so is their cost per view (CPV). What is driving this? Seems like the competition have stepped up their advertising efforts, pushing your ad auction CPV closer to your Max CPV. Glad we got that figured out. But did finding this answer actually help your business? More importantly, does anyone care about these metrics?
If you are a digital marketing specialist with experience adverting on platforms such as YouTube, the aforementioned paragraph makes sense. If not, you might be a bit puzzled by the CPV metric and how it works. In either scenario, you would likely struggle to explain how this rising CPV is having an impact on the broader organisations. Does this trend pose a real problem? Should the organisation adjust their ad budgets to accommodate this? Is the current Max CPV still fit for purpose?
Scorecards are rife with these types of metrics that are wonderfully quantifiable yet are abstracted from the business' goals. The question is therefore how you can identify better metrics that everyone in the organisation can intuitively understand.
For example, while metrics like CPV or CPM (cost per thousand impressions) will help you understand the relationship between advertising exposure and expenditure, they do not tell you much about what actually happened afterwards. Did you target audience retain any of your messaging? Were they more likely to purchase something? Did their average basket size increase? At the end of the day, these are the questions that truly matter to a business, given that they directly relate to business outcomes.
There is also another issue with aggregate metrics such as CPV, CPM, or CPC (cost per click): are you comparing apples with apples? While you might be tempted to prefer a campaign with a lower CPC, there is a difference in audience engagement between a targeted ad accompanying a search result and a generic display ad. One click is certainly not equal to another if one of those clicks comes from an existing customer.
These types of metrics – let us call them budget metrics – are often favoured by business leaders as they help them interrogate where the money went. However, this prevalence can lead people to believe they can use these metrics to effectively optimise their business. The reason this is problematic is that financial metrics are irrelevant without behavioural data to complement them. After all, any investment can be justified if it achieves the target outcome (e.g. more sales) in the appropriate situation.
Therefore, it is critical for businesses to also define and focus on behavioural metrics. These metrics are powerful not only because of their alignment with the business outcomes, but also because of their interpretability. If someone adds the same product to their basket three times in a week, you can be pretty sure that they are considering whether to purchase it. Everyone understand this instinctively. People who read your newsletter every week, visitors who take the time to comment on your content, or repeat customers: these are just some examples of behavioural metrics.
Back to your quarterly review. Imagine that instead of focusing on budgeting metrics you could demonstrate how the increased cost of video ads have been paired with a higher number of engaged shoppers. Perhaps your competitors' campaigns have helped educate consumers, leading them to engage more thoroughly with your content and products. Instead of capping your budgets you decide to step up your investment to take advantage of this engaged audience. Better metrics, better decisions.
This week's topic was suggested by T.J. Harrington. Thank you for the inspiration!